Element Offers Up $650M Vehicle Fleet Securitization

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Corporate vehicle leasing giant Element Fleet Management is launching a $650 million securitization of open-end truck and auto leases serviced by its Gelco subsidiary.

The notes will be sold by Element’s master trust Chesapeake Funding II LLC (CF II) in a Series 2017-2 issuance. Moody's Investors Service, Fitch Ratings, Kroll Bond Rating Agency and DBRS have each assigned preliminary ratings to four classes of notes, including triple-A ratings to the $601.54 million in Class A senior notes split equally among two fixed- and floating-rate tranches.

The Class A notes have 11.23% credit enhancement, similar to the comparable tranche of CF II’s previous transaction, completed last year.  

Chesapeake Funding II is the trust platform that Element Fleet Management established in 2015 to securitize the collateral of the U.S. fleet leasing and management services business it acquired from GE Capital Corp.

In April, Element merged the trust with a previous trust – Chesapeake Funding LLC – that held asset-backed commercial fleet lease collateral associated with Element’s 2014 acquisition of D.L. Peterson Trust and PHH Corp.

Chesapeake Funding II 2017-2 is the first term securitization by Element that will include the combined collateral from all three original leasing firms.

CFII 2017-2 involves 970 corporate lessees holding 270,929 light-, medium- and heavy-duty trucks and cars with an average balance of $20,305. The leases are on average seasoned 19 months to large rated companies (69% of the pool). Over 50% of the obligors are investment grade firms. 

The collateral consists almost entirely of open-end leases, in which the residual risk associated with the vehicles lies with lessees, exposing the trust only to wholesale market risk in the event of an obligor default.

Gelco's originations have had historically low levels of defaults and delinquencies: for the five-year fiscal period 2012-2016, 60-day plus delinquencies have been at neglible levels of between 0.63% and 0.88%; and annual net losses were below 0.01% in each of those years, based on a percentage of the net book value of the leases, according to Moody's.

This series in the CFII master trust will have a nine-month revolver period.

Bank of America Merrill Lynch is the lead arranger.

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